National Company Law Appellate Tribunal
Sanjeeb Kumar Jha vs Yogesh Gupta on 18 December, 2024
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Comp. App. (AT) (Ins) No. 295 of 2024
& I.A No. 991, 992, 2136, 2905, 3572, 4435 of 2024
(Arising out of the Order dated 19.01.2024 passed by the National
Company Law Tribunal, Kolkata Bench, Court-I, Kolkata in I. A. (IB) No.
1645/KB/ 2022 in Company Petition No. (IB)- 1067 (KB)/20 19.)
IN THE MATTER OF:
Sanjeeb Kumar Jha
Address: B-12 Birla Colony,
Near Shiv Mandir, P.O.
Phulwarisharif, P.S. Phulwari,
District-Patna, (Bihar) 801505
Email:[email protected] ...Appellant
Versus
1. Yogesh Gupta
IRP Shraddha Health & Fitness Private Limited,
12 Ho Chi Min Sarani, 2nd Floor, Suit
2D & 2E, Kolkata 70007
Email: [email protected] ...Respondent No. 1
2. Committee Of Creditors of the Corporate
Debtor,
namely, Shraddha Health & Fitness Private
Limited constituting and holding 98.04% voting
right, 12, Ho Chi Minh Sarani, 2nd Floor, Suit No.
2D & 2E, Kolkata - 700 071 ...Respondent No. 2
Email: [email protected]
Present
For Appellants: Mr. Abhi Ranjan Kumar Sinha, Mr. Saurabh
Jain & Mr. Prayag Jain, Advocates.
For Respondents: Mr. Sumesh Dhawan, Mr. Abhay Anand Jena,
Mr. Vatsala Kak & Mr. Shaurya Shyam, for R-
1.
Mr. Dhanananjaya Mishra & Mr. Ayan Rai, for
-2-
Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024
R-2.
Mr. Kumar Anurag Singh, Mr. Zain A Khna,
Mr. Shwetank Singh, for Intervenor.
With
Comp. App. (AT) (Ins) No. 296 of 2024 & I.A No. 997, 998, 2134 of 2024
(Arising out of the Order dated 19.01.2024 passed by the National
Company Law Tribunal, Kolkata Bench, Court-I, Kolkata in I.A. (IB) No.
1646/KB/ 2022 in Company Petition No. (IB)- 1067 (KB)/2019)
IN THE MATTER OF:
Rohit Kumar
Address: Chari (63), PO Mehla
P.S. Mehla, Chamba, Himachal Pradesh-176311
Email: [email protected] ...Appellant
Versus
1. Yogesh Gupta
IRP Shraddha Health & Fitness Private Limited,
12 Ho Chi Min Sarani, 2nd Floor, Suit
2D & 2E, Kolkata 70007
Email: [email protected] ...Respondent No. 1
2. Committee Of Creditors of the Corporate
Debtor,
namely, Shraddha Health & Fitness Private
Limited constituting and holding 98.04% voting
right, 12, Ho Chi Minh Sarani, 2nd Floor, Suit No.
2D & 2E, Kolkata - 700 071 ...Respondent No. 2
Email: [email protected]
Present
For Appellants: Mr. Abhi Ranjan Kumar Sinha, Mr. Saurabh
Jain & Mr. Prayag Jain, Advocates.
For Respondents: Mr. Sumesh Dhawan, Mr. Abhay Anand Jena,
Mr. Vatsala Kak & Mr. Shaurya Shyam, for R-
1.
-3-
Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024
Mr. Dhanananjaya Mishra & Mr. Ayan Rai, for
R-2.
With
Comp. App. (AT) (Ins) No. 298 of 2024 & I.A No. 1004, 1005, 2135 of 2024
(Arising out of the Order dated 19.01.2024 passed by the National
Company Law Tribunal, Kolkata Bench, Court-I, Kolkata in I.A. (IB) No.
1647/KB/ 2022 in Company Petition No. (IB)- 1067 (KB)/2019)
IN THE MATTER OF:
Arun Kumar Bag
Address : N00005 Baghpara Po Baghpara
PS Nowadihi, District - Bankura
West Bengal - 722136
Email: [email protected] ...Appellant
Versus
1. Yogesh Gupta
IRP Shraddha Health & Fitness Private Limited,
12 Ho Chi Min Sarani, 2nd Floor, Suit
2D & 2E, Kolkata 70007
Email: [email protected] ...Respondent No. 1
2. Committee Of Creditors of the Corporate
Debtor,
namely, Shraddha Health & Fitness Private
Limited constituting and holding 98.04% voting
right, 12, Ho Chi Minh Sarani, 2nd Floor, Suit No.
2D & 2E, Kolkata - 700 071 ...Respondent No. 2
Email: [email protected]
Present
For Appellants: Mr. Abhi Ranjan Kumar Sinha, Mr. Saurabh
Jain & Mr. Prayag Jain, Advocates.
For Respondents: Mr. Sumesh Dhawan, Mr. Abhay Anand Jena,
Mr. Vatsala Kak & Mr. Shaurya Shyam, for R-
1.
-4-
Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024
Mr. Dhanananjaya Mishra & Mr. Ayan Rai, for
R-2.
JUDGEMENT
(18.12.2024) NARESH SALECHA, MEMBER (TECHNICAL)
1. There are three appeals before us arising out of common Impugned Order dated 19.01.2024 under 61 of the Insolvency & Bankruptcy Code, 2016 (in short 'Code') passed by National Company Law Tribunal, Kolkata Bench, Court-I, Kolkata (in short 'Adjudicating Authority') in I. A. No's. 1645, 1646, 1647 of 2022 in Company Petition No. (IB)- 1067 (KB)/2019.
2. These three appeals have been filed against a common Impugned Order dated 19.01.2024 and have been tagged together, heard together and hence, we shall deal all these three appeals in the following discussion.
3. In Company Appeal (AT) (Ins.) No. 295 of 2024 Mr. Sanjeeb Kumar Jha is the Appellant herein and alleged Financial Creditor of the Corporate Debtor namely, Shraddha Health & Fitness Private Limited against whom the Corporate Insolvency Resolution Process ('CIRP') was initiated.
After the public announcement of the CIRP on 10.11.2022 inviting claims against the Corporate Debtor, the Appellants herein filed the claim of Rs. 2 Lakh in Form C as a financial creditor. The Appellant's claims were duly acknowledged and verified by the Respondent and accordingly, the Appellants -5- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 were admitted as a Financial Creditor who was holding 25.53%. voting rights in the constitution of the Committee of Creditors ('CoC'). 3(ii) In Company Appeal (AT) (Ins) No. 296 of 2024, Mr. Rohit Kumar is the Appellant herein and alleged Financial Creditor of the Corporate Debtor.
After the public announcement of the CIRP on 10.11.2022 to invite claims against the Corporate Debtor, the Appellant herein filed its claim of Rs. 2 Lakh in Form C as a financial creditor. The Appellant's claims were duly acknowledged and verified by the Respondent and accordingly, the Appellant was admitted as a Financial Creditor and was holding 25.53%. voting rights in the constitution of the CoC.
3(iii) In Company Appeal (AT) (Ins.) No. 298 of 2024 Mr. Arun Kumar Bag is the Appellant herein and alleged Financial Creditor of the Corporate Debtor, who filed claim of Rs. 3,84,540/-in Form C holding 48.92% voting rights in the constitution of the CoC.
4. Mr. Yogesh Gupta is the Respondent herein who is resolution professional of the Corporate Debtor namely, Shraddha Health & Fitness Private Limited and J.N. Hotels Private Limited who is the Operational Creditor has been impleaded as Respondent No. 2 vide this Appellate Tribunal order dated 24.07.2024 -6- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 Common Pleadings of the Appellants
5. The Appellants stated that following the initiation of the Corporate Insolvency Resolution Process ('CIRP'), the IRP published a notice in newspapers inviting claims from all creditors of the Corporate Debtor. In response to this public announcement, the Appellants submitted their claims in Form C as Financial Creditor.
6. The Appellants further submitted that on 17.11.2022, they received an email from the respondent seeking few clarifications and rectifications of the claims form. In this communication to Mr. Sanjeeb Kumar Jha & Mr. Rohit Kumar, the Respondent referred to cash transactions (of ₹2 Lakhs) each which were claimed to be in violation of the provisions of the Income Tax Act. The Appellants complied with this request by clarifying and rectifying their claims and subsequently submitted the amended Form C to the Respondent.
7. The Appellants submitted that the Respondent subsequently admitted the Appellant's claim as a Financial Creditors. The Appellant stated that the Respondent also uploaded these facts on the MCA website in accordance with clause (ca) of sub-regulation (2) of Regulation 13 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
8. The Appellants stated that the Respondent sent an email on 23.11.2022, informing the Appellants of proposed first CoC meeting. Additionally, on 25.11.2022, the Respondent provided further communication sharing the agenda -7- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 for the upcoming CoC meeting scheduled for 27.11.2022. The Appellants noted that by classifying their claims as those of a Financial Creditors, the Respondent has conferred voting rights upon them to participate in this meeting.
9. The Appellants submitted that on 26.11.2022, one of the Appellants i.e., Mr. Arun Kumar Bag, communicated via email to the respondent a proposal to substitute the respondent as the IRP for the Corporate Debtor and proposed name of Mr. Umesh Kumar as new proposed IRP. The other two Appellants i.e., Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar in their capacity as Financial Creditors, accepted this proposal of Mr. Arun Kumar Bag and conveyed their agreement to the respondent, requesting that this agenda be included in the upcoming first CoC meeting for the members to cast their votes.
10. The Appellants further stated that on 26.11.2022, the Respondent No. 1, with ulterior motives, informed the Appellants that their claim require more clarification, thereby withholding their right to exercise any voting rights in the upcoming CoC meeting. The Appellants submitted that in response to this erroneous decision by the Respondent, the Appellants requested the Respondent to reconsider however, despite their request, the Respondent No. 1 did not review the decision, thereby not allowed the Appellants for participating of the said CoC meeting.
11. The Appellants submitted that they participated in the meeting held on 27.11.2022, however, they were subsequently removed by the Respondent No. 1 -8- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 from the meeting and denied them the opportunity to present their agenda regarding the replacement of the IRP. It is the case of the Appellants that following this incident, the Appellants sent an email to the Respondent on 27.11.2022, requesting that their attendance be formally recorded, which was not conceded to.
12. The Appellants stated that they filed the IA's to the Adjudicating Authority against the auction of the Respondent No. 1, however, the Adjudicating Authority, in the Impugned Order dated 19.01.2024, has wrongly directed the Respondent No. 1 to re-examine the Appellant's claims without addressing the merits of the case. The Appellants stated that the Respondent No. 1 acknowledged that the claims of the Appellants were initially admitted for the purpose of collation and therefore the Respondent No. 1 was not empowered to adjudicate on it. The Appellants emphasized that once a claim has been admitted, the Respondent No. 1 does not possess any jurisdiction to reconsider and such decisions are exclusively within the purview of the Adjudicating Authority.
13. The Appellants submitted that, in compliance with the Impugned Order, the Respondent No. 1 sent an email dated 29.01.2024, which included the letter dated 25.01.2024 and arbitrarily disallowed the Appellant's claims and terminated their participation in the CoC without providing any opportunity for -9- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 the Appellants to present their case. The Appellants stated this action is illegal which contravenes legal principles and the relevant provisions of law.
14. The Appellants submitted that they are Financial Creditors who provided loans to the Corporate Debtor, which qualifies as "financial debt" under Section 5(8) of the Code. The Appellants submitted that prior to their claim's admission, the Financial Creditors submitted all necessary documents in accordance with Regulation 8 of the IBBI Regulations, 2016 and when requested by the Respondent No. 1 for clarifications, the Appellants promptly rectified and resubmitted the claim form.
15. The Appellants assailed the conduct of the Respondent No. 1, who in connivance of the Operational Creditor, on being under threat of getting replaced, made the ulterior plot to oust the Appellants as Financial Creditors. The Appellants stated that even the Adjudicating Authority failed to protect their rights.
16. The Appellants denied averment of the Respondent No. 1 w.r.t. to cash transactions as loans. The Appellants stated that there is no statutory prohibition against cash loans to the Corporate Debtor. It is the case of the Appellants that while the Income Tax Act imposes penalties for non-compliance with cash transaction limits, it does not invalidate such transactions under the Code. The Appellants cited judgment of the Hon'ble Madras High Court in the case of -10- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 K.T.S. Sarma vs. Subramanian, [(2001) 4 CTC 486] that penalties do not nullify contracts.
17. The Appellant also denied the applicability of alleged Jharkhand Private Money Lending (Prohibition) Act, 2016 and the Bihar Money Lenders Act, 1974 stated that such acts do not apply in case of application made under Section 7 of the Code.
18. Concluding their arguments, the Appellants requested this Appellate Tribunal to dismiss the Impugned Order and allow them to be member of the CoC.
Submissions Of Respondent No.1
19. Per contra, the Respondent No. 1 denied all averments of the Appellate Tribunal and also denied grounds of challenge to the Impugned Order by the Appellants treated these as baseless and mischievous.
20. The Respondent No. 1 stated that the appellant's claim cannot be considered "financial debt" under Section 5(8) of the Code, as the Appellants fail to establish any disbursal against consideration for time value of money. The Respondent No.1 submitted that the Appellants have not provided sufficient evidence, such as bank statements, book of accounts, etc., to demonstrate that any claimed sum was disbursed to the Corporate Debtor.
21. The Respondent No. 1 stated that the sums claimed were purportedly advanced as cash transactions without proper documentation, which violates -11- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 applicable tax laws. The Respondent No. 1 argued that the transaction in question are preferential and fraudulent transactions intended to defraud creditors and obstruct the CIRP and the loan agreements were allegedly made on 30.09.2022, after an application under Section 9, which was filed by the Operational Creditors way back in 2019 and for which after hearing the order was reserved on 02.08.2022. The Respondent No. 1 argued that the timing clearly demonstrate wrong intentions of the Appellants to circumvent legal provisions. The Respondent No. 1 highlighted that the transaction violates the Bihar Money Lenders Act, 1974, due to lack of registration by the lenders, rendering the agreements void under Section 2(g) of the Indian Contract Act, 1872.
22. The Respondent No. 1 stated that show cause notices were issued to the Appellants regarding this loan transactions, which remains unanswered. The failure to disclose material facts further undermines the Appellant's position. The Respondent No. 1 stated that these transactions are fraudulent and should not be recognized as a valid claim under the Code.
23. The Respondent No. 1 asserted that the Appellants were not considered as confirmed Financial Creditors of the Corporate Debtor and no voting rights were conferred upon the Appellants. The Respondent No. 1 denied that he acted with any ulterior motive or that the proposal from the Appellants to replace the Respondent No. 1 as the insolvency professional had any bearing on the matter. -12-
Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 The Respondent No. 1 disputed claims of erroneous decision-making and denies obstructing the appellant's participation in the CoC meeting, asserting that the Appellants had no lawful right to participate in such meetings.
24. The Respondent No. 1 denied that the appellant's claims were already verified and contended that the Resolution Professional can revisit claims which were considered in laws on provisional basis based on Form C of the Appellants and that the Respondent No. 1 has obligation to determine the credential of the Appellants as Financial Creditor before participation in the CoC. The Respondent No. 1 clarified that the alleged claims of the Appellants were provisional verified and same were clearly reflected when such information of claims were uploaded on relevant website.
25. The Respondent No. 1 emphasised that the Appellant's alleged claims arise from illegal and sham transaction, created solely to gain positions in the CoC. The Respondent No. 1 elaborated that the loan agreements are characterized as backdated and intended to undermine the objectives of the Code and defeat legal CIRP process. The Respondent No. 1 pleaded that allowing the Appellants into the CoC would contravene provisions of the Code, as the loans were purportedly given in cash after critical order about admission of the CIRP was reserved on 02.08.2022 by the Adjudicating Authority.
26. The Respondent No. 1 disputed allegations regarding violations of the Code and stated that all actions taken by the Respondent No. 1 were lawful. The -13- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 Respondent No. 1 emphasized that the Appellants failed to submit adequate documentation as required under Regulation 8 and the claims of the Appellants could not be substantiated as Financial Creditors. The Respondent No. 1 denied the contention of the Appellants that provisions of the Income Tax Act or Bihar Money Lenders Act are inapplicable to present appeals and submitted that the Respondent No. 1 acted as IRP within its jurisdiction in verifying and determining the validity of the appellant's claims, which were deemed invalid based on established legal principles.
27. The Respondent No. 1 contended that the Appellants committed fraud upon the Adjudicating Authority by relying on sham and illegal agreements created around just the time of the commencement of the CIRP and emphasized that there were no financial debts involved, as the appellant's claims were based on cash disbursals which were not reflected in the Corporate Debtor's books.
28. The Respondent No. 1 submitted that the alleged loan agreements are fundamentally flawed due to several legal deficiencies. These alleged agreements were executed in Ranchi and Patna by individuals claiming to be lenders, which contravenes the provisions of the Jharkhand Private Money Lending (Prohibition) Act, 2016 and the Bihar Money Lenders Act, 1974. The Respondent No. 1 also asserted that there is no verifiable evidence of actual loans disbursement, as required documentations such as bank statements etc., -14- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 have not been presented to substantiate the claims of disbursement by the Appellants
29. The Respondent No. 1 refuted allegations of the Appellants made during hearing these appeals before us that the Respondent No. 1 has misused funds including his fee and has already spent huge money. The Respondent No. 1 submitted that his remuneration of Rs. 1.5 lakhs per month as the Resolution Professional was carefully evaluated and approved by the CoC after considering several factors. The Respondent No. 1 justified CIRP cost incurred for the management of assets of the Corporate Debtor, including gym equipments, a temperature-controlled swimming pool, and overall fitness centre operations. The Respondent No. 1 stated that the CIRP cost included salary payments to the Corporate Debtor's workforce comprises 28 skilled staff members, compliance with various regulatory frameworks, including GST, PF, and ESI regulations and for maintaining operational integrity.
30. Concluding his pleadings, the Respondent No. 1 requested to dismiss all three appeals with exemplary cost.
Response of Respondent No. 2
31. During the hearing held on 24.07.2024, three I.A. No. 1987, 1988 and 1989 of 2024 were filed by the Applicant / Operational Creditor with a request to be impleaded as a Respondent in the present appeals. We heard the parties -15- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 and noted that the Applicant was the person who has filed the original Section 9 application under the Code for Rs. 1.22 Crores on 11.07.2019 and if he would have been in the original CoC, his shares should have been 97.02% of the voting shares of CoC. After hearing all the parties, we allowed to implead Applicant.
32. We note that Section 9 application was considered by the Adjudicating Authority and the order was reserved on 02.08.2022. The Respondent No. 2 submitted that the Appellants in connivance with the Promoters of the Corporate Debtor, tried to fabricate the three purported loan agreements only to oust the Operational Creditor (new Respondent No. 2 herein) from the CoC and to sabotage the CIRP process. In this connection, the Respondent No. 2 mentioned that two loan agreements dated 30.09.2022 by Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar for Rs. 2 Lakhs each paid in cash were entered into between the Corporate Debtor immediately after order was reserved under Section 9 of the Code on 02.08.2022.
33. The Respondent No. 2 submitted that third alleged Financial Creditor Mr. Arun Kumar Bag also claimed of Rs. 3.83 Lakhs (approximately) for residual operational debt dues pending against the supply contract executed on 22.08.2022 without any proof of disbursal of such money and the same is also fraud being played by Mr. Arun Kumar Bag.
34. The Respondent No. 2 stated that the IRP, who collated claims based in Form C submission by the three Appellants, later came to know that fraud was -16- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 being played by the Appellants and therefore, subsequently the IRP has gone into details of the claims and came to conclusion that the claims of the Appellants need to be further investigated and established after verification of documents to be called from the Appellants.
35. The Respondent No. 2 submitted that the claims of the Appellants cannot be treated as financial debts since there were no disbursal of money to the Corporate Debtor as no documentary evidence have been submitted by the Appellant.
36. The Respondent No. 2 also submitted that the cash transaction are violation of law of the land and need to be rejected. In this connect, the Respondent No. 2 pointed out two judgments passed by the Hon'ble Supreme Court of India in the matter of Anuj Jain, Interim Resolution Professional of Jaypee Infratech Limited v. Axis Bank Limited & Ors. [(2020) 8 SCC 401] and New Okhla Industrial Development Authority v. Anand Sonbhadra [(2023) 1 SCC 724].
37. Another point raised by the Respondent No. 2 is that verification of claims and substantiation of claims with proof is a prerequisite under the Regulation before the CoC is constituted and in this connection, the Respondent No. 2 defended the action taken by the Respondent No. 1/IRP to exclude the Appellant from the CoC and cited few judgments i.e., Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr. [(2024) SCC OnLine SC -17- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 122] and NRC Limited v. State of Maharashtra & Anr. (Write Petition No. 8449 of 2022).
38. Concluding his arguments, the Respondent No. 2 requested to dismiss all three appeals with cost.
Finding
39. We note that Form C were filed by two Appellants, namely, Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar claiming financial debt of Rs. 2 Lakhs each having security interest of Rs. 3.08 Lakhs. In the respect, we note that the loan agreements do not contain any details of such security interest.
40. We note that two separate loan agreements have been entered into by both the Appellants Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar dated 28.09.2022 with almost identical contents in which the amount of Rs. 2 Lakhs is supposed to have been given in two instalments i.e., Rs. 50,000/- in cash on 25.09.2022 and Rs. 1.5 Lakh on 28.09.2022 in cash the Corporate Debtor. The loan agreements also mentioned that borrower being director of the Corporate Debtor is known to the lenders as a business person. We note that no prima-facie documents including affidavits has proved any bonafide business relationship between the borrower and the lenders. It is significant to note that both the loan agreements were entered with Corporate Debtor on 28.09.2022 after the order of Section 9 application of Respondent No. 2 was reserved on 02.08.2022 which raise doubts of genuineness of the purpose of such alleged loan agreements. -18-
Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 The loan agreements also do not includes adequate details. Be that as it may, since the matter is pending before the Adjudicating Authority, we will not go into details further on these issues.
41. We note that the third Appellant i.e., Arun Kumar Bag has stated that he has entered into supplying material to the Corporate Debtor and the Corporate Debtor placed the purchase order of Rs. 6,48,540/- and the Appellant claimed that Rs. 2.65 Lakh was paid as advance, however, remaining amount was not paid i.e., outstanding balance of Rs. 3,84,540/-. It is the case of the third Appellant i.e., Arun Kumar Bag since money was not paid, he converted this outstanding operational due into financial loan and entered into an agreement with the Corporate debtor on 22.08.2022 and subsequently filed his Form C for same amount of Rs. 3,83, 540 /-. We wonder as to how the outstanding operational debt could have been converted into financial debt. Be that as it may, since the matter is pending before the Adjudicating Authority for final adjudication, we will not go further in the merit of the same.
42. We reiterate that Section 9 of the Code was initiated by M/s J.N Hotel Pvt. Ltd./ the Operational Creditor/Respondent No. 2 for amount of Rs. 1.22 Crores (approx..) on 11.07.2019 which was heard and order was reserved on 02.08.2022 by the Adjudicating Authority. The application filed under Section 9 was allowed and CIRP against the Corporate Debtor was initiated vide order dated 28.10.2022 and subsequent to which a public announcement was issued -19- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 inviting claims. The Appellants submitted their claims in Form C as Financial Creditors and based on the claims, the IRP constituted the CoC on 20.11.2022 and the report of constitution of CoC was filed before the Adjudicating Authority on 23.11.2022.
43. We have noted from the pleadings that after collation of the claims and after tentative verification of the claims, the Respondent No. 1 sought further clarification from the Appellants since the Respondent No. 1 as IRP was not sure about the Appellants status as Financial Creditors. The main reason for such decision were based on the nature of such purported loan agreements which were given in cash. The Respondent No. 1 also observed that such perpetrated cash transactions/ loan agreement were in violation of Jharkhand Private Money Lending (Prohibition) Act, 2016 and the Bihar Money Lenders Act, 1974.
44. The Respondent No. 1 also noted that the provisions of Companies Act, 2013 were also not met. The Respondent No. 1 categorically stated that the Appellants could not be entitled for any voting rights in the CoC Meeting to be held on 22.11.2022 since the Appellants status as Financial Creditors were not established.
45. We note that during hearing on 24.07.2024 we enquired from the Appellants Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar about their nature of business, their relationship with Corporate Debtor and asked them to file the -20- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 Affidavits stating the nature of business, PAN No and attaching tax returns along with Financial Statements for the relevant year when the loan agreement was entered into on 30.09.2022.
46. We were also curious to note that the address of both the Appellant is exactly same and shown as Chari, Mehla, Chamba, Himachal Pradesh which is almost about 1650 km far away from Patna. Evidentally, there is no business relationship of the Appellants with the Corporate Debtor who was involved in gym at Patna.
47. In this connection, we note that the Affidavit was filed by Mr. Sanjeeb Kumar Jha and Mr. Rohit Kumar and noted that Mr. Sanjeeb Kumar Jha disclosed his income tax returns for the year 2023 in which his gross income was only Rs. 7.37 Lakhs and similarly Mr. Rohit Kumar disclosed his income tax returns for the year 2023 in which his gross income tax was stated to be only Rs. 5.8 Lakhs. The other details were not fully furnished. Be that as it may, it is suffice to note that the nature of their so-called business do not indicate any business relationship of these two Appellants with the Corporate Debtor and similarly financial position of these two Appellants also not justify their financial need to lend the meagre money of Rs. 2 Lakhs that too in cash to the Corporate Debtor situated in Patna which is almost 1650 km. As such we are not satisfied with the Affidavit filed by both the parties. Since, the matter is pending with the Adjudicating Authority, we will not express our definitive views and -21- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 leave it open to the Adjudicating Authority to decide status of the Appellants in accordance with law.
48. We note that the Adjudicating Authority has also castigated the Respondent No. 1 for hastily farming the CoC when establishing the financial credential of the Appellant. In this connection, we would like to take into consideration the relevant paragraph of the Impugned Order which reads as under :-
"11. It has been contended by the RP that the loans have been advanced by the purported financial creditors at a time when the prospect of CIRP was looming large over the company so as to get a seat on the CoC so as to drive the CIRP. However, under the present frame work the acknowledgment of a financial creditor in the context of insolvency and bankruptcy proceedings typically focuses on the creditor's status as a financial creditor and does not take care of other sundry circumstances or concurrent conditions etc. as seen from the above definitions of the financial debt and the Financial Creditors.
12. Thus, the claims of the creditor to be included in the CoC shall have to pass through the above rigor before they can be given a place in the CoC. However, it appears that in the present case, the IRP has hastily formed the CoC without proper verification of the claims just on a "preliminary examination", which finds no place either in the act or in the Regulations. The IRP should have followed -22- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 the stipulations of the statute including the regulations before forming of the CoC.
13. We restrain ourselves at this stage from passing any orders against the Financial Creditors but we direct the RP to re-examine the entire process of formation of the CoC and ensure that the Statute including relevant rules and regulations are properly complied with and then proceed to reconstitute the COC if required."
(Emphasis Supplied)
49. We note that the Adjudicating Authority has only directed the Respondent No. 1 to re-examine the constitution of the CoC in accordance with the Code and Regulations.
50. We do not find any illegality of this action of the Adjudicating Authority in the Impugned Order. We also do not find the merit of the Appellants in their Appeals for their alleged rights to be member of the CoC. We feel that it has to be done after satisfaction of the Resolution Professional, the Respondent No. 1herein as well as the Adjudicating Authority.
51. We note that vide the Impugned Order dated 19.01.2024, the Adjudicating Authority directed the Respondent N. 1 to reconstitute the CoC, if required, in accordance with law after holding that CoC was constituted on 28.11.2022.
52. It has been brought to our notice that pursuant the Impugned Order, the Respondent No. 1 issue letter dated 25.01.2024 to the Appellants cancelling the provisional membership of the Appellants in the CoC of the Corporate Debtor. -23-
Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 It has also been brought to our notice that subsequently, the Respondent No. 1 has also reconstituted the CoC of the Corporate Debtor comprises of Operational Creditor and Respondent No. 2, the J.N Hotels Pvt. Ltd. who has been inducted as member of the CoC having 97.02% of the voting shares along with other employees of the Corporate Debtor in terms of Regulation 16 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
53. Since, the Impugned Order only talks about re-examination and reconstitution of the CoC by the Respondent No. 1 and has to take final decision in this regard. we will not examine the merit of such actions. We are not expressing any opinion on this and leave it to the Adjudicating Authority to decide the same in accordance with law.
54. We note that during haring on 13.08.2024, the Appellants alleged that the Resolution Professional has claimed CIRP cost of Rs. 1,57,52,440/- and the Appellants tried to give a picture as if the money has been largely spent as legal fee and for ulterior motives of the Resolution Professional. In this connection, we asked the Resolution Professional to file an affidavit regarding utilisation of the said money, which was filed by Yogesh Gupta, the Respondent No. 1 (IRP) on 19.08.2024, where he gave details of the CIRP cost of Rs. 1.57 Crores (approx.) for the period from 31.10.2022 to 31.12.2023 (14 months) and submitted that such cost was incurred for the Corporate Debtor to keep the Corporate Debtor as a going concern which was operating gym. The money was -24- Comp. App. (AT) (Ins.) No. 295, 296 & 298 of 2024 spent in payment of salary to all 28 employees including the payment towards PF, ESI, payment of electricity charges, payment of advocates fee, payment of security services, royalty to Gold Gym from whom franchise has been taken by the Corporate Debtor fuel expenses, etc. The Resolution Professional has also submitted that he charge fee of Rs. 1.5 Lakh per month plus GST, which was duly approved by the CoC. We will not go further in the merit of the CIRP cost incurred by the Respondent No. 1 and we leave it to the CoC to decide the same.
55. In fine, all three appeals devoid of any merit fail, stand rejected. No costs. I.A. if any, are closed. The original petition i.e., I. A. No's. 1645, 1646, 1647 of 2022 in Company Petition No. (IB)- 1067 (KB)/2019 are remanded back to the Adjudicating Authority. We direct all the concerned parties to appear before the Adjudicating Authority for further necessary action on 08.01.2025 (Wednesday).
[Justice Rakesh Kumar Jain] Member (Judicial) [Mr. Naresh Salecha] Member (Technical) [Mr. Indevar Pandey] Member (Technical) Sim